Sunday, December 27, 2009

Even a hungover, nearsighted, cross-eyed, Spanish Fighting Bull could have seen this guy coming a mile away. Umar the Islamic Jihadist Terrorist, whose actions should have raised more red flags than even the Russian Army owns, tried to blow up a commercial flight to Detroit with a Panty Bomb. The myriad of red flags, any one of which would have been enough to have prevented you or me from ever boarding our flight, didn't even slow him down as he flew from Nigeria to Amsterdam and then on to Detroit .

Why is it that Umar Farouk Abdulmutallab, a last minute, cash paying customer on an international flight, whose only carry on luggage was his Panty Bomb, was not subject to the same level of scrutiny that I received when I flew from Tampa to Newark NJ to attend my uncle's funeral? This, even though his father had called the US Consulate and warned them that his son was dangerous; a phone call that landed Umar on a terror watch list. I, on the other hand checked an overnight bag, wasn't on the terrorist watch list, wore only a pair of gym shorts, a t-shirt and flip flops, ( Where I might ask was I going to hide a bomb in this outfit?) and carried only my wallet and a cell phone. Still it was deemed necessary that I undergo enhanced security measures. The reason? I booked the trip late. So what were Umar's excuses? Oh yeah, that's right, he wanted to blow up the plane!

The Obama Administration's Home Land Security Chief, Janet Napolitano, appearing on a Sunday morning news show looked tough in her leather jacket, but acted like a real wimp, suggesting that the government's watch list of over 500,000 names, one of which is Umar Farouk Abdulmutallab, was just too large to search in an attempt to prevent a terrorist bent on killing all the other passengers on the plane from boarding. Where do they keep this watch list, and why is it so hard to search? Is it written in crayon, perhaps in poor penmanship on index cards and stored in the bottom of a draw of a desk in a little used basement office of an annex at homeland security ? I typed the word terrorist into the Google search engine as I wrote this piece, and it came back with about 37 million entries. How long did it take to perform this search? It took 0.12 seconds . It's not that the list is too long , it's that no one is watching the Watch List. So why do they call it a watch list if they don't watch who is on it?

Our politically correct system of airline screening is a Giant Joke, inconveniencing everyone, yet protecting no one. How can I tell? It's easy. I can't carry sunscreen in my suitcase when I go to Miami, but an Islamic Jihadist from Nigeria on the government's terrorist watch list, a person who's actions should have set off all kinds of alarms, can carry a bomb onto a plane and all they want to know is if he wants the chicken or the vegetarian dinner.

The folks in this administration, whose plan to combat terrorism amounts to a policy of talking nicely to terrorists so they like us, need to wake up and smell the PETN before hundreds more people die needlessly. The PC Crowd in charge, who this year can already take credit for the 13 deaths at FT Hood, narrowly missed another several hundred notches on their belt. If I've got this straight, it's okay to keep the list as long as you don't refer to it. That might be profiling and that is not politically correct. So, instead of targeting the few terrorists for enhanced screening, we are subjecting everyone who flies to an inadequate level of screening, inconveniencing everyone while protecting no one. Not a very bright thing to do, but a very PC approach and that's what counts. Right?

News Flash: that's not what counts. What counts is getting the job done, and the government is failing to provide the flying public the safety they promise . The Last Nut Job Islamic Jihadist who tried to use this type of explosive to blow up an airplane bound for the US had it hidden in his shoes, which is why everyone who now boards a plane is commanded to take off their shoes. Won't flying be fun when the folks at TSA start checking out Grandma's Knickers because of the Panty Bomber! What's next? Body cavity searches?

Saturday, December 19, 2009

Let's just call it what it is, as one of my favorite Economists Walter E.Williams writes in a recent Town Hall column:

"There is absolutely no moral case, much less constitutional case, for Congress forcibly using one American to serve the purposes of another American, a practice that differs only in degree from slavery, which we all should find morally offensive."

If you strip the health-care debate of it's sugar coated political buzz words such as mandate and public option, aren't we really talking about just another case where the government has decided to force you to labor for the benefit of someone else? At the rate we are going, how long will it be before you'll be spending more of your time working for others rather than yourself. Isn't that so very altruistic of you!

If the Health Care Police ( HCP), I assume they would be the ones in charge of enforcing the governments health care mandate, knocked on your door every other Monday morning and forced your college educated 22 year old daughter to work all day picking up trash on the side of the highway you'd be horrified. You'd want some answers! What dastardly criminal act could she have committed to deserve such a punishment, keeping her out of work all day and thereby depriving her of 10% of her income?

They don't do that in America, you say.Well, not quite yet anyway, but they will soon if the Democrats have their way with health care. She will be forced by the government to spend an equivalent amount of her earnings to purchase something she had decided not to. Is this not also a practice that differs only in degrees?

As a parent, wouldn't you want to talk to the prosecutor to know what crime your daughter had committed that merited she be fined upwards of 10% of her income? Shouldn't there be some kind of a trial to find her guilty before punishment is meted out, even if it is only a show trial like the one KSM is entitled to? Won't you be mortified to learn she has committed the most heinous of acts imaginable in our new Progressive Society? That's righ,t she is Guilty of working for an employer who does not provide health insurance, and has failed to purchase a government approved insurance policy on her own. Oh, the shame of it!

Your representatives in Congress are spinning a yarn that goes like this: legions of hospitalized young adults without medical insurance are the cause of the explosion in health insurance premiums. This in an attempt to justify a morally bankrupt and unconstitutional taking of private property. Their remedy? Mandate ( a pretty word that means to force) that all citizens must buy health insurance. That's what they would like you to believe , but that is not what the facts tell us.

The fact is that they are bullying healthy young people into to subsidizing health care premiums for those in poor health who have medical insurance, those with preexisting conditions who have been denied health insurance coverage and those who are not financially able to purchase health insurance . The Progressive Bullies in Congress always pick on the politically weak in society, in this case it happens to be young people, it's not like they are reliable voters anyway, and their perennial favorites, "The Rich"who will pay the freight to provide an insurance subsidy for the politically favored classes.

Will health insurance reform really be the rallying cry Progressives use to justify re-instituting a modern day version of Slavery in America ?

Monday, December 14, 2009

You wouldn't think so if you read the transcript from the November 2 meeting of the President's Economic Recovery Advisory Board (PERAB), the group responsible for presenting ideas to promote economic recovery to the President. It was a free for all of Government Interventionists and Central planners who would have made Joe Stalin proud. Fittingly, it was held in the Roosevelt Room, perhaps in honor of that other great believer in free markets, I mean central planning, F.D.R.

His economic wunderkinds put the children at B. Bernice Young Elementary in New Jersey to shame with their own tune whose chorus, “We need a price on carbon, mmm mmm mm, and then we need a cap “ was music to the President's ears. This gathering of mercantile songbirds was less a forum on serious economic ideas, than it was a murder of crows squawking praise of two mutually exclusive economic propositions: increasing manufacturing jobs by making energy green and expensive. This song doesn't work!! It's like singing the words to "Silent Night" to the tune of "No Sleep Till Brooklyn." Artificially raising the price of energy causes recessions and job losses in manufacturing. It doesn't promote economic recovery.

The President's solo first verse was sung while he patted himself and the others in attendance on the back, crooning, " We have pulled the economy back from the brink." No matter how many times I hear him sing this one, it just never gets old!

Jeffrey Imelt of GE recited a self-serving little ditty that only through greater exports will we be prosperous once again. Evidently GE is looking for additional government help in the export markets. A loyal green believer, he then added to this musical round with a verse from that old clean energy standard, Higher Energy Prices are an Economic Stimulus. This guy has pipes!

Songbird and publisher of the Spanish -Language newspaper La Opinion, Monica Lazano treated us with a spicy Latin hit called The Lazano Multiplier. It went like this: "One taxpayer dollar spent to support small business export assistance creates $500 in taxpayer gains." What this song lacks in economic reality it makes up for in it's fascinating rhythm.

John Doerr, Al Gore's dance partner in green deception and Kleiner Perkins added his voice to the chorus: “We agree the most important thing we could do to have America lead in this industry and generate a lot of jobs fast is to put a price on carbon; a price and a cap on carbon.” It's a beautiful little tune of government intervention sung in the key of Green. He implored our leader that by raising up the cost of all forms of carbon-based energy, "... we could create hundreds of thousands, even a million jobs in a year, in a permanent new industry -- high-wage jobs, that are not going to be outsourced." I was spellbound as I waited to hear the next verse in this lovely song of hope and change. What hi-tech cutting edge industry would blossom in this new bright green era? What a letdown; he reached for a note and fell flat with that ridiculous dirge, "Cash for Caulkers," an earthy ballad of a million American workers caulking their way across this great land.

Could Mark Gallogy, investment banker extraordinaire and member of the President's Transition team, rescue this tune? After a hopeful start explaining that there has been little growth in US demand for electricity, he belted out his verse. Expecting a song of setting the free markets loose, I was crushed to hear the same sad sack melody called Put a Price on Carbon.

Paul Volker chirped in with a classic tune from years gone by, reminding Imelt and the rest that we need a more competitive business environment not just subsidies for exports. Ultimately, he too disappoints when he forgets his lines about how that can be done.

The longer it went on, the worse this song kept getting. Richard Trumka's version of God Bless the Recovery Act was worse than anything you could imagine. The balance of the meeting was dominated by Big Labor, whose song, We are the Champions looks good only on paper. Their real life track record in creating new jobs is outdone only by their ability to cripple every manufacturing industry they represent.

After getting to the end of the transcript, I'm convinced that the President would be better off with an advisory team of fifth graders. Why? Because with about a half hour's worth of economics 101 they would understand that the keys to our nation's continued economic success are low taxes, a stable dollar, and less government interference in the private sector. A concept that has eluded the President and his advisers!

Monday, November 30, 2009

With more than 10% of the workforce now Unemployed, and a greater number underemployed it's seems very odd to me that the Majority party has spent the last 10 months promulgating policies to reform nearly every aspect of the economy with the exception of those that would bolster economic growth and create jobs. Included in their "REFORM" of health care are the very tax policies that will stifle economic growth and Job creation. There is No Bigger Job Killer that I can think of , than their proposal to raise the capital gains tax rate.

The Capital Gains tax is a Success tax, and is only levied on economic actors who have risked their capital and succeeded. There is no federal tax on the loss of capital. The folks from whom these taxes are extracted are the people who have built or enabled others to build successful enterprises by providing the necessary capital. I like to call them the Job Enablers. They enable entrepreneurs to create wealth by creating jobs, a commodity that is in rather short supply lately.

Politicians like to pretend that the damage done by the Success Tax is limited only to the small number of people who actually pay the tax, but it is not. There are three other groups who pay an even greater price as the result of an increase in the Capital Gains tax and they are the very groups Congress pretends to champion. The first are the unemployed who will remain so. Their numbers are rising monthly and are easy to see. The second group are the Entrepreneurs who run small businesses and would provide the additional jobs needed except for the lack of available capital.They are not as noticeable, but are critical in relieving the problems of the first group. At his upcoming "Jobs Summit" the President would do well to understand this fact. It would give him another one of those teachable moments he's so fond of. Perhaps with his formidable skills behind the teleprompter he could persuade his democratic colleagues who are itching to raise this and other tax rates not to deploy this job killer of a tax.

Raising the tax on capital reduces it's supply, increasing the cost and availability of capital at the margin. It really is as simple as that. If there are five red balls on the table representing the total capital available to fund businesses and the jobs that go hand in hand with economic expansion and if the government confiscates two of them through increased taxation, it is clear to everyone that there are fewer red balls left to fund economic growth. Which brave politician wants to step up to the mike and make the argument that another dog park, or retrofitting a government building with green technology is more important than the real economic growth provided by this country's entrepreneurial class? When capital is made scarce through increased taxation it is the small and newer businesses, the country's job creation machines, who are left without capital as the government crowds them out of the market, not the politically well connected GE's and GM's of the country.

In their attempt to support a return to higher tax rates of the past, the Democrats frequently point to the boom years of the Clinton Administration as proof that higher tax rates promote economic growth. That they can make this argument with a straight face indicates how truly ignorant of economics and human behavior they are. It also reveals them to have an advanced degree of selective memory syndrome.

The Clinton Tax hikes came in 1993, and the boom years which they credit to those increased taxes didn't begin until 1997. Why was there a four year lag? If increased taxes are such a potent economic stimulus why didn't the boom years start in '93 or '94 or '95? Why was there only tepid economic growth? Their claim doesn't pass the smell test, especially when you consider the economy was coming out of a recession when growth typically is more pronounced. And Why did the more robust growth of the 90's come at what would normally have been the tail end of an economic expansion, which is usually when growth is more subdued? Finally, if as they claim tax increases are so good for economic growth, why wasn't that their first agenda item? Why wait to let the Bush era tax cuts expire in 2010?

What the few Democrats who understand economics, and apparently there aren't many of them, conveniently forget to mention in their "taxes are good for the economic growth" argument is that it was the significant reduction in the Capital Gains tax rate, from 28% to 20%, that was passed in 1996 and became law in 1997 that was responsible for the boom, not as they like to claim their 1993 tax hike. The last two times the Capital Gains tax was increased it was followed by sub par economic growth. The first increase was in 1969, which along with an inflationary dollar helped usher in the stagflation of the 70's, which is where we seem to be heading now. The second time the rate was increased was as a part of the 1986 Tax Act , which subjected Capital gains to the same tax rates as ordinary income.

Why limit the ability of successful investors to grow the economy by confiscating the capital needed to do so? There are some folks who defend the capital gain tax as a measure of fairness. What's fair about eliminating jobs? These are the people who fund expansions, and you want to slow them down? We can never know how many Microsoft- type enterprises, along with the jobs they produce, died in the lobbies of Venture Capitalist in the 1970's and late 80's, never making it to the board room and the decision makers as a result of dramatic increases in the capital gains tax.

Who is the third group that get's mauled when Capital and the jobs it creates are scarce? Just have a look in the mirror Mr. Congressman. Come next November when a sub par recovery has not produced the needed jobs, it might well be your turn to stand in the unemployment line. Good Luck with that, we'll see you next Fall!

Monday, November 23, 2009

Senator Jim Demint earlier this year said that the Health-Care Bill would be Obama's Waterloo. I only partially agree with him. He's right that it will ultimately bring an end to his reign, but the Waterloo analogy doesn't begin to capture the scope of the defeat. At the battle of Waterloo, Napoleon, who like Obama was thought to be a genius, was defeated by conscripts of the combined armies who fought to protect their own nation states. During this era of warfare, armies fought in formations on either side of the "battle field" training their weapons on the opposing army's soldiers, and firing volley after volley until their opponents had either been killed or had broken ranks and fled leaving a bloody battle field strewn with dead and dying men. The Midterm elections in 2010 won't resemble that at all. It won't be near that pretty.

A better analogy might be Custer's annihilation by Sitting Bull at the Little Bighorn. The Democrats, as did Custer, will be fighting against the guerrilla tactics of the indigenous tribes: Custer the Sioux and Cheyenne; the Democrats the Tea Party Patriots and other conservatives who feel as the Indians did that their way of life is being taken from them. Custer and the Democratic Leadership both underestimated the strength of their opponents and overestimated their own resources, counting heavily on reinforcements that in Custer's case didn't and in the Democrat's case won't arrive. The real distinction between the two battles is that when Napoleon and his army were defeated at Waterloo he was merely banished to the isle of Saint Helena, while Custer and his troops were massacred by Sitting Bull and his warrior braves. They weren't given a Political time out. They were wiped off the map, and that is what is in store for the Democrats in 2010.

The big turn out at the polls that wasn't, by Obama's reinforcements, proves that they won't fight for any one but him and he isn't running in 2010. They didn't turn out in the Battle for Virginia and were also no-shows in the fight for the NJ Governorship. That's the problem with troops who are lead by the force of charismatic personality and not motivated by principal. The Democratic warriors fight only for an extra ration, while the Tea Party Patriots and Conservatives are fighting to protect their way of life.

There will be no Decisive Battle as there was at Waterloo and in the National Elections of 2008. Instead there will be, just as in the battle of the Little Big Horn, a series of smaller skirmishes. The battle fields will be the State and Congressional Districts; the battle will be fought by the voters who reside there, many of whom have changed sides in the past year. The voters who had sought hope and change in 2008 have now gotten a taste of that change and found it not to be the sweet taste of liberal progressivism they were promised, but rather the bitter taste of socialism and have lost all hope in The One. They've come to reject the promise of higher taxes on nearly everything and the greater government involvement in almost every aspect of their daily life.

The Democrats who will have been the Majority party for 4 years come next November's election will by then own the economy, along with at least one automaker and it's financial arm, the two mortgage giants Fannie and Freddie, several banks, the insurance company AIG and possibly a newspaper company or two. If they get their way with the health care bill, you can add your doctor's office and the local Hospital to a growing list of wards of the government.

To quote the Democrats very own savage pundit James Carville, “It's the Economy Stupid!” In the mid terms it's always the economy and a recession that was caused by bad government policies to begin with won't be cured by equally bad, but different government polices. With an unemployment rate that tops 10% and is rising, it won't be flesh wounds they'll be tending come November, it will be scalpings. Here's hoping that the government run health-care program they covet has plenty of sutures in the ready.

Monday, November 16, 2009

Everyone wants a free lunch these days, and it seems that in the Cafe of Crony Capitalism, sometimes know as Washington, the free lunch special is being handed out as openly as the candy given to children who knock at the door on Halloween. But alas, not everyone gets a treat, because there really is no such thing as a free lunch. Someone has got to pay. That's why you, the taxpayer, are always the one who is tricked into picking up the tab.

Turns out you, the taxpayer, don't qualify for the free lunch. Just how does one qualify for the free lunch? Well, in this bold new era of hope and change "we all have embraced" it's nice to see that the more things change the more they stay the same. You need to be a Crony (one who plys Congressmen with cash) or you're going to go hungry.

How does one become a Crony with benefits? Is it based upon need, as in GE needs their $139 billion debt guaranteed or their profits won't look as good? Or is it based upon some other metric such as literally keeping the Gold in Goldman Sachs? It was the President of the New York FED who intervened in the negotiations between the two parties to a contract to ensure that the taxpayers ponied up enough cash to make sure Goldman Sachs got paid back 100 cents on the dollar on the bets they placed with their bookie AIG, and not just the measly 60 cents they were trying to settle their claim for. No, it's not based on need, it's pretty much just based on cash, it's campaign contributions that matter.

It seems that there are all sorts of companies that qualify for Crony Benefits. If you're an automaker and you run your business off the road and into the ditch you need to just wait patiently for the taxpayer tow truck to pull you out of the ditch, provided that is that your membership in the Crony Capitalist club is up to date and you have ponied up enough for the right campaigns. If you're a banker, it is a little trickier. Of course you need to start out the same way, by lending money to folks who won't ever pay you back, but you need to be very nimble if you want to end up like JPMorgan and not like Lehman Brothers.

If you are a professional Crony Player like the folks at Fannie and Freddie, you get to play by your own personalized set of rules where it doesn't matter how badly you have screwed the pooch, you still get to walk away with $90 million, give or take.

Even if your not a profit making Enterprise you can qualify to be a Crony with benefits. You can have the Attorney General of your state over-look your criminal activity and instead bring charges against the Whistle blowers, especially if that AG is Running for Governor of California and your fraudulent non profit is tight with SEIU .

The list of Cronies gets longer each day. Come to find out most of the jobs saved by the Gargantuan "stimulus" package weren't saved at all. They were there all along, but you got to give them extra credit when it comes to creative math skills, counting cost of living raises for State workers, and funding for undergraduate students to hand out pool cues in the college rec center as jobs created or saved!

Next week in the house you can watch the Democrats in control pay off the AMA with the so called doctors fix for Medicare. They will debate the $210,000,000,0000 bill for 1 hour, with no amendments allowed and then pass it on a purely partisan vote. Want to knkow who is going to pick up the check on this Free Lunch? Why you, the taxpayer are, of course! Not a bad payday for supporting the farce of a health care bill the President is so desperate to pass.

But take heart all you lesser folks who don't qualify for Crony benefits. At least this President and his advisors aren't making the same foolish mistakes that Roosevelt did when he was confronted with his Congressionally induced recession. Oh no, they've learned their lesson! This time there will be no run away spending programs in an attempt to prop up excessive wages, nor increased taxes and price controls. They're a thing of the past. You can also be confident this time they won't let the dollar go to hell. Please someone tell me they won't let that happen .Could you imagine where we would be if they made the same mistakes this time? This time is different, right? Someone please tell me it'll be different this time!

Thursday, November 12, 2009

In 1978, 913 followers of Jim Jones, the leader of the People's Temple Cult sipped on what they thought were cups of Kool-Aid, and died in a mass suicide. Their deaths were the tragic result of believing so completely in a leader who proclaimed to have their best interest in mind. The recent actions of unions across the country make me wonder if they don't share the same total belief in their leadership as the followers of Jim Jones. Could it be in their DNA?

With unemployment at near record levels in the modern economy, the unions are gulping down the sugary sweet promises of their leaders, not realizing these promises are economic suicide.

Last week, the Transportation Workers in Philadelphia went on strike. It seems they and their leaders wanted more of just about everything. They wanted more than the 11.5% pay increase offered over 5 years. They'd rather have 20% and a $1250.00 signing bonus. A signing bonus? Isn't that precious? Who do they think they are? They wanted bigger pensions than what they were offered and they didn't want to have to contribute any more to their health care insurance payments than they already did, which by the way is 1% of their salary. With an average salary of $52,000.00 per year that's $520.00 per year for healthcare, or $10 bucks a week. Can you understand their outrage now? Neither can I!

With a recently announced unemployment rate of 10.2%, you'd think the union leadership would be smarter, wouldn't you? Their actions betray a sense of privilege, not very much different than that of Marie Antoinette who exhorted her subjects, starving due to a shortage of bread, to "Let them eat cake." With the private sector continuing to hemorrhage jobs, and health insurance premiums increasing by double digits, these folks seem to claim rights once reserved only for Royalty.

The Unions are demanding superior pay for inferior performance, an unfair arrangement in any employment environment, let alone one with better than 10% of the workforce looking for jobs. As more and more unions show their true colors and seek to claim privilege over their private sector counterparts, they run the risk of a public execution, similar to that which befell the former Queen of France.

Their reckoning won't come at the hands of an Executioner and his Guillotine, but rather in secret ballot votes like the one that de-certified the Union at Boeing's North Charleston plant in South Carolina. If you think the 20 point swing in the vote in the recent Virginia elections was sending a message, how about the 199 workers who voted to kick the union out, compared to only 68 members who voted to continue union representation.

It's no coincidence that the announcement to locate the second assembly line to produce Boeing's 787 in that North Charleston plant, and not the Union shop in Seattle, came only 48 day after the vote de-certifying the Union. It aint Kool-Aid guys!

Tuesday, November 3, 2009

It certainly is a surreal day in the neighborhood and I don't think it has got anything to do with Rush Limbaugh criticizing the President, as David Axlerod, one of the President's advisor's would like you to believe. What I find surreal is all the attention being paid to the Public Option as well as Al Sharpton's assertion on This Week with George Stephanopoulos that Liberals are the real conservatives. Yes, he actually said that with a straight face. That line was about as surreal as it gets, boys and girls.

Back to the Public Option. The public option argument is no different and just as silly as me arguing with my wife that the pin-stripping should be gold and double lined on our Ferrari Enzo. What makes these arguments different is my wife and I both know we joking, whereas Al Sharpton's conservative wing of the Democratic party is deadly serious. What makes the argument surreal is that we know we can't afford what we want and so do they, but that is not stopping Al's pals.

It gets even funnier when they begin to explain how they will afford the unaffordable. They want you to believe that they are going to cut Medicare. Let me say that one more time, only slower.

The Democrats in Congress lead by the President are going to cut Medicare.

The idea that this Administration is going to cut spending is laughable. The notion that they will take a meat cleaver to Medicare and hack 50 billion dollars from it's budget each and every year for the next ten years is a side splitter. A solemn pledge of fiscal prudence from the leader of the gang that is projecting Trillion Dollar Deficits for as far as the eye can see isn't all that reassuring. But it's comforting to know that their lack of fiscal discipline has some limits, or does it?

Their spin on the deficit is every bit as surreal as their foolish public option debate. The President says he won't sign a bill that will increase the deficit. That's pretty rich, don't you think? What he means to say is get ready for big tax increases, both the direct and indirect kind.

Forcing, excuse me, mandating (that's more PC) that everyone must purchase health insurance while at the same time imposing a tax on medical device manufacturers is merely a stepped transaction. It is a tax increase disguised as a fee extracted from the medical device manufacturers, which they pass on to the insurance company in the form of higher prices, who then passes it on to you through higher insurance premiums. Raising the top marginal rate by 5% is well, it's just a tax increase. Hey good thing that recession is over and the economy is surging ahead, cause we all know that raising taxes in a recession is a recipe for disaster!

What they want you to believe and what is reality in this debate occupy positions that are polar opposites on the reality continuum!

Reality: government programs always cost more than originally projected. Congress has an abysmal record when it comes to cutting spending and raising tax rates, never produces any where near the amount of tax revenue that Congress believes it will.

Surreality: Congress can provide quality health care for everyone without bankrupting us all along the way.

Congress should do what I did when I realized that I couldn't afford the $1,000,000 Ferrari. I settled for just the pinstripes instead. Now I'll be the first to admit they don't look as good on me as they would on that Ferrari, but they don't look that bad, and on the plus side I won't have to hire a bankruptcy attorney.

Tuesday, October 13, 2009

When they cut their deal with the Administration the insurance companies rolled the dice and came up snake eyes. They traded away proper insurance underwriting practices in order to capture a larger customer base, one that would be guaranteed through government force. Like their auto company brethren who struck their own Faustian bargains before them, they have come away a several fingers shy!

After promising the insurance companies a government mandate that would force young people under penalty of fines to purchase insurance (not very American sounding, is it?) the administration's minions in the Finance Committee said Oops, we lied. They watered down their mandate, delaying it's start date and reducing the penalties enough as to make it ineffective, leaving the insurance industry hanging out to dry.

Don't get me wrong. I'm not going to shed a single tear for the insurance companies. The bargain they sought with the Administration was despicable. They know how insurance works and doesn't work, and have played the go along get along game with the government for far too long, instead of being a force for positive change. This time it came back to bite them, and they're going to need stitches to close the wound.

The Government in it's extremely finite wisdom is doing exactly the wrong things to fix the problem of rising health care costs.

A quick history lesson for those who have forgotten. It was the Government's involvement in health care, subsidizing employer sponsored insurance payments by making them tax deductible, in order to cure other problems it created by imposing wage and price controls during World War II, that started us down the road to health care ruin in the first place. When you subsidize something the demand for it goes up. It's like having a clearance sale! The very same politicians who believe so strongly in incentives when they are handing out $7,500 of your tax dollars so their fellow eco-warriors can drive green in a $40,000 electric vehicle are just undone by the fact that subsidizing health care has lead to an increased demand for it.

The solution to rising health care costs is LESS GOVERNMENT, NOT MORE!

The government needs to let insurance companies get back to selling insurance, which is a protection against a loss that is not economically recoverable from. Insurance is not a payment system designed to take the brain power out of the decision to go see a doctor simply because the cost of that visit is near zero.

The government needs to Stop subsidizing health care via the tax code. When consumers of health care start to pay the real costs of the health care they purchase they will respond, like they do when the price of any other commodity they purchase increases. They will reduce their demand for it.

The Government mandating what procedures need to be included in an individual's policy needs to end. Only the consumer can know what is of real value to them, and what they are willing to freely exchange their hard earned dollars for. When they are able to shop and compare costs and benefits, they will.

We need to let doctors be doctors and practice medicine again, instead of having to practice the bizarre form of health care CYA that an out-of-control trial lawyer lobby has forced upon them through outrageous malpractice awards.

Until we get the Government out health care, no real reform will be possible, and Government will continue to play their game, which is to shift costs onto what ever group happens to occupy their demon of the day spotlight.

Below is a link with the fax number of every senator who is voting on the bill today. Send your senator a note and let him know how you feel.

Wednesday, August 5, 2009

To hear our Representatives in Washington and their economic guru's talk, the economy works like a pump, which they have been busy priming with large amounts of government spending, courtesy of taxpayer canteens. Their theory is that once they have primed the pump sufficiently business activity will flow and end the current economic drought.

This kind of thinking betrays Congress's ignorance of the working of both pumps and the economy. The mere act of priming a pump does nothing to produce the desired outcome, a greater supply of water. Using a lot of water to prime a pump when only a small amount is necessary is wasteful and does not pay off in an increase in the amount of water produced. What really creates the flow of water is the effort of the individual who forces the pump handle down, then up, and down once more.

Whether pumping water or increasing economic activity, it's really all about the individual and his effort. We should be doing everything we can to encourage this effort, but instead our government is hell bent on doing just the opposite. The return an individual receives from his efforts is his incentive, and is being reduced year after year, with the government taking a greater share of his production. The unwieldy mess that our current tax system has become discourages those who would generate the increased economic activity we need.

The greater the number of buckets an individual pumps from the well, the less he is allowed to keep from each additional bucket. If increased economic activity is the goal then our tax system is backwards. The first bucket or two pumped are the easiest of the day and also have the lowest tax cost to the individual. Our progressive income tax that takes a bigger share of each additional bucket , discourages the individual precisely at the point that an incentive to produce more is needed. The basic premise embodied in the tax code says the harder you work the less you get to keep! If that is not a system rigged to stifle production, what is?

Hiring additional employees to help increase one's output has it's own code of discouragement. Let's start with the sponge of a tax called Social Security; it soaks up 15% or so of each and every bucket you fill. If the Democrats have their way with health care and you're a small business you can count on losing another 8% to pay for the government run health insurance plan. That's almost a quarter of every bucket gone before you've even had a chance to wet your beak.

That's just for starters, if you're not discouraged yet there is still the progressive income tax structure which will sop up another 35+% of what's left in your bucket today, and 40+% after the Bush tax cuts expire in 2010. That is unless the various surtaxes that have been proposed are imposed, draining even more from YOUR BUCKET. That's without considering State, County and local income taxes, which with very few exceptions are on the rise. That will mop up more of what is left from your day at the well .

The biggest problem our Nation faces is the government's never ending thirst for a greater share of your labor and mine. While the rest of the world lowers tax rates making them more competitive, our leaders are constantly finding news ways to make you and I less competitive through higher taxes that discourage production.

We need to scrap the Tax on Labor, that we refer to as the Social Security Tax, all together. The tax money that Washington takes from us is fungible; it doesn't matter what label they put on it. It's no secret that Social Security receipts in excess of Social Security payments are spent as soon as they are collected on other items in the government's budget. There should be only one low, flat rate income tax, spread over the broadest base possible, to encourage a revival of economic activity.

Competing in the global marketplace of the 21st Century will require us to either attract the necessary capital or cut wages to be competitive. Only one of those alternatives produces rising incomes for American workers. Yet the Policies to make the US a country that is capital friendly are nowhere to be found. The anti capital accumulation tax called the capital gains tax should be yanked from the tax code. Doing so will ensure that capital will once again be in greater supply relative to labor, and will result in rising wages and providing the higher standard of living all working people seek.

In order for the US to once again become the low tax, high wage economic juggernaut of the past, something's got to give. That something is run away government spending. Lowering the Tax rate and making the base as broad as possible will give everyone an incentive to help their representatives in government understand what is a good use of taxpayer money and what is not. Just as Congress is now getting an earful from the folks who aren't enamored with the Government Health Care Option. The kind of political push back they are sure to receive, once all working citizens have an interest in how their tax money is being spent, will make it easy to chop a trillion or two from an insanely bloated Federal Budget and then restrain it's growth after that.

Monday, August 3, 2009

In Washington this week we find our economically illiterate Congress hurriedly working to provide the funding needed to bring you another season of every stimulus junkies favorite program called "Cash for Clunkers".

The Show opens with the announcer asking the studio audience and the millions of unemployed people viewing from home a question by borrowing a line from the old Rolaids commercial.

"How Do You Spell Relief"?

The audience and the voters back home yell out the answer:

C A S H - F O R- C L U N K E R S!

The premise of the show is that everyone will be better off if the price of used cars, the kind bought by folks who can't afford new ones, are more expensive, and new cars for people who can afford to buy them are subsidized by you, the taxpayer. To do this the government will overpay people who can afford to buy new cars, for their used cars, giving them free money to buy a new car while crushing the used cars they bought. See how that works? It's pure Genius . Do you get it?No? I don't either!

The producers of the show can't believe how wildly popular free money has become. After being delayed by three weeks while they tried to work out the kinks, this version of the free money give away show has become a smashing success, no pun intended. Successful to the point that all the money allocated to produce the show through the fall has been used up in just two weekends.

During a commercial break we are reminded just how hard they are working in D.C. to brings us the sequel to our favorite new stimulus show. They point to the speed with which they ran through the budget of "Cash for Clunkers One" as proof of the fact that it's working so well. Go figure. Who would of thunk that so many people would be clamoring for free money?

Some of the show's critics point out that it hurts every taxpayer who is stuck footing the bill in order that a few lucky folks can get a good buy down at the new car dealer. While others point out that the poorer folks who may have wanted to buy one of those inexpensive cars now destined for the scrapper are the ones who will literally pay the price by paying more for a clunker to get around in. But hey, the show has got great ratings, and that's what counts in Washington. Effectiveness? Not so much. In Washington it's all about the ratings.

So, I say why stop at Cash for Clunkers? After all, when you are on this big of a roll, you've got to go for broke! Which apparently we are! It's just not happening fast enough for our Congressional buddies. So, I'd like to suggest they try my all time favorite show called : "Money for Nothing"! Yeah, that's the ticket. Just hand out free money to everyone. Then we'd really be getting somewhere. There's already a catchy theme song we could use for the show, by a band appropriately named Dire Straits. Which is where we are heading as a result of the foolishness that passes for leadership and sound economic policy by this Congress.

Wednesday, July 22, 2009

The Obama Administration and it's policies have the business community squarely in it's cross hairs and is moving in for the kill. Proposed taxes on energy, increased taxes on businesses to pay for expanding health care coverage, and the rising cost of complying with ever more regulation are serving to choke off profits and restrict growth at the very time our country needs them the most.

Policy makers across the nation choose not to understand a very basic yet simple truth, the more difficult the government makes it for an employer to earn a profit, by confiscating profits through taxation and increasing expenses through regulation, the fewer profitable employers there will be. By extension, corporate and personal income tax revenues will be lower, as will the growth in employment. Thus, government spending on welfare and unemployment must be higher. This seems like pretty basic stuff, don't you think?

Even the economist they love to quote when they want to increase government spending understood this.

“Nor should the argument seem strange that taxation may be so high as to defeat its object, and that, given sufficient time to gather the fruits, a reduction of taxation will run a better chance than an increase of balancing the budget.”John Maynard Keynes

Sadly it is the rare Politician who understands the quote above. Raising tax rates to raise tax revenue, and passing regulations that restrain the capacity of entrepreneurs is ultimately the disappointing folly of fools, for it never produces the desired results. When you reduce incentives you restrict growth. When you limit economic growth, you lessen opportunity and eliminate prosperity.

The bell curve also applies to folks who run small businesses, not just college entrance exam scores. Only a relative few business owners are near genius at organizing and running profitable companies. Most of the rest are spread out across the balance of the curve. It's these business owners, at the margin, who are hit hardest by increases in taxation and the cost of more government regulations. They run businesses where profit margins can be razor thin, even in good times. The one other critically important thing that needs to be remembered is that they are the job growth engine of the economy.

A business only grows when the principals responsible for the decision to expand or not conclude that the risks of a proposed expansion are outweighed by the potential for increased profits. When they conclude otherwise, businesses don't expand and jobs are not created. Yet it is these very business owners who find themselves under attack and in the administration's cross hairs. We hear it over and over again from the President and his advisers in a never ending chorus: "We'll take it from the rich," "We will only tax those earning over $250,000 per year because they can afford it." “They need to pay their fair share.” The large majority of these folks are small business owners.

We have heard this all before and tried it with disastrous results, but evidently congressional memories are short. I remember the luxury surtax on boats which came into effect in the early 90's; it too was supposed to raise additional revenue for the government. It would do so by soaking rich boat buyers who could afford to pay the surtax, billions in tax revenue would be made available for the Washington pols, or so the theory went. Did it work ? No, it seems the rich opted not to be taxed more and they stopped buying boats from American manufacturers. The American boat building industry was crushed, and it's hard working employees were forced into unemployment lines. I'm sure that wasn't the intent of the do gooders who passed the legislation. But it was the result, and as always the folks at the margin were the ones who felt the pain of the government's misguided attempts to “soak the rich.”

What politicians fail to understand is that the rich who work hard to earn their wealth in the first place will rightly work just as hard to protect it. The governments new found infatuation with income redistribution, which they hope to accomplish by once again “soaking the rich” will only serve to dig our nation deeper into the hole of diminishing revenues and increased spending on transfer payments.

Business owners will keep their powder dry, delaying their expansion plans until the misguided policies of this administration are replaced by the wisdom of the electorate in the voting booth. The American people instinctively know that the massive increase in government spending accompanied by a reduction in the incentives for productive work and economic expansion is a recipe for disaster soup.

Wednesday, June 24, 2009

In an editorial in the Wall Street Journal on Wednesday, Robert Reich argues that the central idea behind the public option for health care is to squeeze the profits of insurers and push them to make changes to reduce costs. This exposes his seriously infirm grasp of economic reality and points to his near religious belief in the power of "Good Government", a phrase which perhaps defines the word oxymoron. The only squeezing a public option would produce would be the squeezing of additional dollars from your wallet, and the only cost reductions will come from the imposition of health care rationing .

Mr. Reich is living both figuratively and literally in economic La La Land, with Liberally tinted political blinders so large that they block out reality. From his lofty perch at the University of California at Berkely, yes the very same California that is teetering on bankruptcy due to unrestrained "good governance ", a large part of which goes to pay for health care programs for state employees and the poor, he sends down his prognostications for fixing everything that is wrong with capitalism. His usual cure, as you may have guessed, is more spending on more "Good Governance". This time he's fixing health care.

You would think that with his bird's eye view, so to speak, of the destruction wrought by his beloved "Good Governance", he might change his tune. But this song bird of ever more government spending, can only warble for yet ever more government spending to fix the very problems too much government spending has caused. It's a vicious cycle.

That he can't or won't connect the cause (too much government spending) with the effects (a meltdown of his state's budget process) which have his state a mere 30 days from insolvency, and at the same time advocates even further expansion of the government's role in health care is nearly beyond belief.

The government option he promotes doesn't pass the economic smell test. People respond to incentives, even the " good governance" types will admit this when it comes to taxing cigarettes and soda pop, but not when it comes to government run health care. If you want less of something tax it. Want teenagers to drink less soda? Put a surtax on it. Want smokers to cut back? Add another dollar of tax, to the price of a pack of cigarettes. If, on the other hand, you want people to use more of something, lower the cost.

Robert wants to increase the demand for health care by providing it to more people for free, while at the same time reducing the cost. This flies in the face of economic reality. The end result is obvious. If you are buying steak for your family's dinner and your free- loading brother- in- law wants to pop by with his clan for a meal on the house , your options are the same ones the government faces . You can cut everyone's steak in half(rationing) eat hamburger instead (provide an inferior service) or bust the budget and provide steak for everyone.

Here's my prediction: When the same politicians, who only ever make political decisions because they are incapable of making economic decisions design and run your health care program, you'd better get ready to pay dearly. There will be lots of steak for some, a little hamburger for others and a great big tab for the taxpayers.

Monday, June 8, 2009

The logic behind this ill fated rescue attempt of Green Motors and Fiysler (Fiat + Chyrsler = Fiysler, pronounced Fiz-ler) doesn't add up, but the tab that the government expects the taxpayer to pick up is mounting, and continues to add up and up and up! What started out as a $17.4 billion dollar bridge loan from the Treasury Department, via the Mother of all political slush funds, the TARP program, to forestall the inevitable GM and Fiysler bankruptcy has turned into an ongoing corporate welfare scheme whose price tag so far is a whopping $80 billion or so.

Even the No More Corporate Welfare Chorus in Congress has now changed it's tune, and is singing that classic hit by The Car's: "Let the Good Times Roll"! It is a pity these song birds don't know the next several lines of the song which are as follows:

Let the good times rollLet them knock you aroundLet the good times rollLet them make you a clown

As the Auto Oracles in Washington warned, to let GM, or Fiysler for that matter fall into bankruptcy would mean the end of automobile manufacturing in the US and the collapse of the entire auto supply chain. As the months since it's dire warnings have passed, and the costs of keeping GM and Fiysler out of bankruptcy have skyrocketed, we can now see that it wasn't the sky that was falling, it was GM and Fiysler. The sky is still overhead where it belongs, and now so too are GM and Fiysler where they belong: in bankruptcy.

If the new GM and Fiysler that emerge from bankruptcy as less bloated organizations with greatly reduced liabilities, courtesy of taxpayers, bondholders, auto dealers and the rule of law, can be seen as one step forward, then the continuing militant culture of the UAW, that bought and paid for this egregious display of political favoritism and the government's mandates for smaller greener cars must surely be seen as two steps backward.

For this rescue to work, a smaller GM, with the UAW's two left feet now stepping on toes not only on the assembly line but in the board room as well , will have to dance it's way back into the hearts of the American car buying public and do what the old GM and Fiysler could never do: build small cars that the public will buy in large quantities, and do it profitably. If that is not enough to ensure their next bankruptcy filing, they'll need to do this while the auto oracles in congress call the tune for future design, production and distribution. Good Luck GM and Fiysler! Things are going to get small!

How small is small? As I looked down from the drivers seat of my 96 Jeep Cherokee at the Mini Cooper that had pulled up along side of me at the stop light, I noticed the new car sticker on the window which proclaimed the car's superior gas mileage. I also noticed it did not meet the revised cafe standards of 35.5 mpg's highway that the government has mandated, not that it missed by a mile, it only missed by half a mile, per gallon. I pointed out to my wife and 3 daughters who fit very comfortably in our car that Washington had decreed that this would be the new standard for size and comfort going forward. They pointed out to me that they weren't going to drive in a car like that because they wouldn't fit. Can you imagine that? A family- sized car that your family won't fit in! Only the government could do this with a straight face. When the comedian Steve Martin said to us "Let's get small," we all knew that he was was high. What excuse can Congress give?

When the bailout music stops the next time, I predict that once again it will be the taxpayers who are out of luck, looking for a seat and finding that in the politically charged game of auto industry musical chairs ,the unions having paid the man in charge of the music will get a heads up and grab the only seat left before the government calls "game over".

One last question: Why is there a need for Ford and the other two now bankrupt automakers to give $52,000,000,000 to the UAW's VEBA to fund health care costs if Obama and Co. are going to deliver on Universal Health Care?

Friday, May 29, 2009

" A Government Big Enough to give you everything you want is Strong Enough to take everything you have".

That quote by former president Thomas Jefferson, the author of The Declaration of Independence, was a warning about the danger to our freedom and liberty inherent in Big Government, by a man who was well acquainted with the tyranny of big government. Having disregarded Jefferson's advice, we now bare witness to the very real threat to our liberty that unbridled big government has now become .

The weak Federal government created by the founders, whose primary role was to protect our rights and guarantee our freedoms, has been superseded over the years by a powerful central government that has lost sight of it's raison d'etre . The raw power of big Government was clearly on display in it's handling of the automaker's bankruptcy negotiations. Their actions served to upend bankruptcy law and defraud bondholders of their private property rights. When a private citizen steals another's money and is caught he goes to jail; which is where Bernie Madoff resides for his participation in a scheme to defraud investors. When government officials steal from investors they go to Hollywood to tell their supporters what a great job they are doing, I think the line was "Los Angeles, you ain't seen nothing yet," then they ask for additional campaign contributions.

This is not the sort of behavior one expects from government officials. Just ask the teacher and police unions of Indiana, whose retirement accounts have been pilfered by this same auto task force. I don't think this is the change they voted for, but what the heck, it is change, and as we've been reminded, they did win! As unfortunate as it may be, you expect the administration to demonize Wall Street as merchants of greed and bash the Hedge Funds types, but cheating one group of union employees out of their retirement savings in order to fill up another group of union retiree's accounts? How do you square that one? Has someone's campaign contribution envelope been a little light lately? What else might explain it?

You can't chalk this outcome up to the fact that the task force followed the rules and one group came out on the short end of the stick. They have been breaking the rules right from the start. The TARP legislation doesn't authorize money to be spent on non financial institutions like the automakers in the first place. The rules in bankruptcy court, where Chrysler is now and GM is heading don't allow the judge to show favoritism towards a group of unsecured creditor's claims over another group of secured creditors, even if the Judge is a latina women, which Judge Gonzales is not. In my reading of Article II of the Constitution of the United States, which defines the power of the executive branch , I can't find the power which gives the President the authority to buy an automobile, let alone the whole automobile industry!

Lucky for the UAW that where they are concerned the rules are meant to be broken, and broken they have been. Just ask anyone who's been in the unfortunate position of having to negotiate with them and the political thugs for hire who do their bidding. I don't Blame the UAW; they paid good money for these services, they may be brutish, but they can only talk tough. Besides it's not Uncle Vito who's doing the knee cappings in the auto wars; believe it or not it's Uncle Sam. All these years I've labored under the false impression that Uncle Sam's wrath was reserved for folks like the Nazis, the Commies and the Terrorists. I guess we can add law-abiding retirees, bond holders and car dealers to the list of undesirables .

So, there you have it. After every investor who evaluated an investment in the bankrupt US automakers dismissed the idea, concluding they would not return to profitability, Big Government in its infinite wisdom jumped into the breach with a sack full of your Franklins. Flexing it's muscles in an unprecedented take over of the weak sisters from Detroit, it thumbed it's nose at the wisdom of the investors, instead forcing it's citizens, whom it claims to represent, to fund these unprofitable enterprises through increased government taxation.

Wednesday, May 20, 2009

Tuesday, the President announced his new cafe mileage standards and the world rejoiced. Well, maybe not the whole world, not even all of the automakers, but the ones on the government's life support system were wildly enthusiastic. In announcing the new standards for the industry, Dear Leader has shown them the way forward and has divined a new "Path to Prosperity". This "Change that he believes in," is a future where Detroit produces tiny little green cars; the kind you can plug into a wall outlet, get a good night's rest and be ready in the morning for your next trip into town. If this is what he truly believes, I believe he's crazy.

The Detroit Two and a half are in the mess they are in today partly as a result of cafe standards, which forced them to produce domestically small unprofitable cars. How will making these standards more difficult and costly to achieve do anything but make their situation worse, although at this point it's hard to imagine the auto companies in worse shape. The new standards mean the Auto manufacturers will need to produce ever lighter (smaller is lighter) and costlier automobiles (technology is expensive ) than they do now. The great leap forward in autos is here, or is it?

That technology is going to cost big money , which shouldn't be a problem for the Detroit Two and a half who are, after all, flush with profits from a decade of phenomenal sales and record earnings. Only kidding... sorry about that... I mean bankrupt . Where will the money come from to finance the new technologies needed? I think you already know the answer to that question: it will come from you and me. Taxpayers will fund the auto industries next, almost certain to fail government mandated attempt to sell little green econo-boxes that no one wants. This isn't change! This is what they have been doing for years, losing money on little cars people didn't want. The difference is, this time it will be your money they're losing. In my book, that's failure!

So the President, who said he didn't want to run the Auto industry, having dipped his toe into the water, in order to give a beat down to the folks who had previously financed the automakers, and finding he liked it, now stands hip deep in the nationalization pool, wading towards the deep end and a government purchase of GM in a "surgical" bankruptcy proceeding. Making his next big splash with your money, he'll top off GMACs coffers with another $7.5 Billion dollar bailout, without missing a stroke.

This example of smart government is very similar to the tiny little "Smart Car" already available. It's great if you don't want to take too many people very far, but if your ambition is to save the entire US Automobile industry, you're gonna need a big car and a private sector willing to finance profitable automakers. The President's actions of late bode poorly for the future on both counts, and shows that when it comes to autos, he seems to be in over his head.

Tuesday, May 12, 2009

The popular video game, Grand Theft Auto, has seemingly exploded off the video screen in recent months, and is being played out in real time by the Obama Administration. Like the video game, it enables "political players" to take on the role of a criminal enterprise, roaming freely around fictional cities knocking over banks and insurance companies, sacking CEO's, intimidating Hedge Fund Managers, threatening Bondholders and anyone else who gets in their way, in order to score political points and win the game.

Just as in the video version, the players have names: the Ring Leader Barry, his number two man and enforcer Rohmie, and the assortment of ethically challenged, tax- dodging cronies Timmy, Tommy, and Katie.

The action in the video game takes place in make-believecities that represent New York, San Francisco and Miami. In the real life version, the action is mainly centered in make-believe cities like Detroit, the Utopian Labor City on the hill, Washington D.C., the Financial Nerve Center of the World, and New York City, the Penal Colony for Greedy Bankers and Nefarious Wall Streeters.

Points are scored by doing the dirty work of local community organizers and running political protection rackets for liberal groups. In the video game, players steal one car at a time; in the much grander real life version, plundering the entire auto industry for the UAW is done in one fell swoop, scoring countless political points in the process. A new feature of the game is the Boeing 747, available if you want to swing by Lady Liberty and score some additional style points, while taking cool snaps to impress the guys back in Chi-town.

Unlike the video game, the real life version lets you score big by shooting up the health care industry, bullying doctors and roughing up Blue Cross and Blue Shield executives. Points can even be had for stealing vouchers from school children trying to get an education, and shaking down taxpayers to fund all sorts of shovel- ready projects (gamer code for political make- work jobs).

The sound track in the latest version of the game enables you to censor radio stations, so that you can filter out the Limbaughs, Hannitys ,Becks and other radio personalities who don't agree with your vision for America. Instead, a continuous loop of elevator- type background noise emanates from the likes of MSNBC, CNN and NBC.

In an unusual twist, considering the game is mostly played by Liberal types, there are no points awarded for being carbon neutral. It's been reported that grumbling can be heard from inside the little green hybrid/electric cars, as they hurry from issue to issue, dishing out change we can believe in, something about how cramped these little tin boxes are, and couldn't we just one time carjack one of those roomy SUV's? Apparently, a carbon tax is being written into Grand Theft Auto 2.0, assuming that release makes it past the voters.

Monday, May 11, 2009

General Bernanke and his Federal Reserve now find themselves hip deep in the time honored military tradition of fighting the last war, and as with all armies who fight the last war General Bernanke is in danger of losing his current battle with inflation. While fighting a deflation with an increase in the money supply is a correct policy action, seeing a deflation where there is none, the Fed Chairman reveals that he has read his history of the Great Depression and learned the wrong lessons from it.

This problem of seeing falling prices as deflation and not the result of economic contraction can't be helped as long as he views events through the lens of a Keynesian Economic Model. Keynesians see only inflation and deflation. In their economic world view they don't grasp the differences between contraction and deflation, nor expansion and inflation .

The problem he faces is similar to that of a fireman who doesn't understand the difference between the paper fire in a kitchen trash can and the grease fire on a stove. Dousing both with water, he puts one out but intensifies the other.

Had the economy actually been in a deflation, the extra liquidity the Fed added would have been the correct monetary lever to bring relief . The problem for the Fed was that we were not in a deflation, but a contraction, which can also be marked by falling prices, but will not be fixed by additional monetary ease. As a result, even with the Fed's massive expansion of it's balance sheet, prices continued to fall.

The sharp contraction of the economy, ignited by a breakdown of the loan securitization market, helped to cause falling prices. The financial hardship of falling home and securities prices, while painful to many, was providing the economic cure to the recession by once again rationalizing market prices. This, in turn, would bring private capital back to the markets in search of newly created value. The Fed, in trying to prevent the deflation that wasn't, by injecting additional liquidity into markets that didn't need it, took exactly the wrong course of action. The Fed's misstep is resulting in a fanning of the sparks of a new inflation that, along with the recovery, is just now getting underway.

As the economy slowly continues to show signs of a recovery, the Fed needs to quickly do an about face and withdraw it's monetary surge, or the battle to tame inflation will be long and hard fought, but ultimately a losing one. The Federal Reserve should then play it's part in securing our economic future by once again fixing the value of the dollar,thereby eliminating the risk of inflation and assuring economic actors that the profit negotiated in today's contracts will not be diminished by the hidden tax of inflation. Economic growth and a return to a sound currency would unwind a lot of the negative effects of the increased liquidity the Fed has produced.

What was, and is still needed, are incentives to encourage risk taking by investors and entrepreneurs. Increasing the after tax returns to capital for successful risk takers is the road to an expanding economy that will create real jobs in the private sector. Economic expansion, along with the growing profits it produces, would also provide the additional revenue the Treasury seeks. Instead, we hear talk of higher taxes, closing loopholes, and hiring additional IRS agents to beef up enforcement . None of these are pro-growth policies. Unfortunately, pro-growth incentives will probably not be forthcoming from this Congress, as Government is firmly stuck in the muddied Keynesian view that the economy is suffering from a "shortfall in aggregate demand", which in their construct can only be addressed by additional government spending when the private sector retreats.

My guess is that when the economic history of this period is written, the Feds policy of fighting a contraction with monetary stimulus, coupled with the unusually large government interventions in just about every aspect of the economy, will show that it actually resulted in prolonging the depth and breadth of this recession .

Wednesday, April 29, 2009

If water -boarding of terrorists is torture and as a result criminal , why is it that the financial equivalent of water-boarding is now routinely practiced not by the CIA on terrorists, but by the White House, Treasury and The Fed on bondholders, investors and CEO's.

Water-boarding was part of the enhanced interrogation techniques the CIA used to extract information from enemies of the United States. Enhanced interrogation techniques are performed outside of the normal interrogation process that is used on enemy combatants. When the government chose to restructure the failing automakers outside of the normal process (a bankruptcy proceeding is the normal process when you are insolvent) they did so for a reason, and yesterday that reason became crystal clear.

Keeping the Automakers out of bankruptcy, and thereby removing the necessity that the restructuring move forward based on "The Rule of Law", was paramount if the Unions were to have any hope of securing the payment of their unsecured VEBA health care trust claim. A big win for the Politically savvy and well connected UAW, but a terrible loss for the bondholders and taxpayers who will foot the bill.

Only in the political arena could two unsecured creditors receive vastly different treatment, as have the Bondholders and the Unions. The UAW, whose unsecured VEBA is owed $10 Billion by GM, will receive 39% of the GM stock; the Bondholders, who are owed $28 Billion, will receive 10% of GM stock . Do the math: the Union has received 10 times what the government expects the bondholders to take in this restructuring.

In the Chrysler deal, the Union fared even better, as they were unsecured creditors and the Chrysler bondholders were secured creditors. The bondholders received 28% of the value of their $6.9 billion in bonds in cash; the Union will receive stock worth approximately $4.2 billion, and a note for an additional $4.58 billion, which represents 82% of the value of their claim. Either the government negotiators have dyslexia and have made a terrible mistake in their paperwork, or this is political payoff WRIT LARGE. Is this not the equivalent of financial waterboarding?

And thus we enter a brazen new era of government, when the White House is openly complicit in the theft of, as a matter of fact is directing, the looting of private property from investors. Welcome to the Rule of Man, or as the President calls it, change we can believe in! Where campaign contributions mean everything and the rule of law, not so much.

Exactly what did he mean when the President of the United States said;"Let me be clear. The United States government has no interest in running GM. We have no intention of running GM." Apparently he meant it's not an interesting job, but we are going to do it anyway!

Sunday, April 26, 2009

While reporting on the nationwide Tea Party Protest, Larry Kudlow spoke about the idea that the United States should become a tax haven; a country whose tax laws would encourage capital formation and attract investment capital from around the world to fuel not just a recovery but an economic resurgence. This very simple yet very powerful economic idea would produce greater prosperity for everyone, greater than all of the government handout programs enacted to date.

The Tea Party Movement shows the electorate is ready for just such an alternative. The outrage over the bailouts and growing government intervention into every part of our lives has finally touched a nerve. The progressives who are dismissing this movement as nothing more than a fringe group fail to understand that all change takes place at the margin. When Grandmothers and Grandfathers both democratic and republican are demonstrating not for increased benefits but for less spending they are the voters at the margin. What the Tea Party demonstrators instinctively understand is that this "Government Intrusion" is fueled by the ever growing tax burden they must bear.

Their furor grows as Federal, State and Local government spending increases, continue unabated during a recession, funded with a whole host of new taxes on them to pay for it all. The disconnect is striking as they watch the private sector cut jobs and expenses to regain profitability, while the ever expanding public sector continues to hire new workers and increase the pay and benefits of existing employees. Is this responsible government?

The key to capitalizing on this movement is to unite these disparate groups into a coalition of tax payers who have had enough and not fracturing this movement by segmenting them according to which tax they may or may not pay. Does it really matter if it is your income or real estate, or social security tax burden that is too high? Throughout last year's campaign we heard too often about how some people who were not paying income taxes were going to get a tax refund and not often enough about how taxes of all kinds have risen to unacceptable levels. All taxes are a tax on income.

The Democratic argument that we are simply going back to Clinton era tax rates is nothing if not disingenuous. When the top marginal rates were increased in the early 90's real estate, social security and sales taxes were nowhere near the level they are today. Politicians know that by dividing people according to which tax they pay they can turn one group of overburdened taxpayers against another and continue their reckless spending .

High rates of tax onlabor (the social security combined rate is 15.6%, up to $106,800 of income), income( the personal income tax rate is scheduled to return to 40+%) and capital ( divendend and capital gains rates are inceasing) serves only to assure that they remain scarce commodities. What this economy lacks is investors willing to deploy additional capital, to employ additional labor at higher income levels. More people earning more income can better provide for themselves, thus greatly reducing the need for government to provide services. Governments at all levels need to cut spending in order to reduce the tax burden on those who choose to work and invest their money to provide the jobs this economy needs so that individuals will have the resources to support themselves.

Monday, March 30, 2009

It took Ford's CEO Alan Mulally two trips to Washington to figure out that the bailout money the government was dangling in front of him was really a pact with the Devil, fraught with peril, but figure it out he did and so he and Ford survive to live another day. GM and Chrysler however weren't as lucky. They couldn't or wouldn't see the handwriting on the wall, and thus have sealed their own fate.

Chrysler's CEO Robert Nardelli is now forced to negotiate a do or die deal with Fiat, as his partner the devil holds a gun to his head and whispers in his ear "cut a deal in 30 days or you my friend are toast". Rick Wagoner, GM's CEO, has been shown the door, and GM has been given 60 days of operating capital to conclude it's restructuring. All we can say is good luck... you are going to need it!

Is it possible that GM will be able to do in 60 days what it hasn't been able to do in the last 20 years? No! It can't, and won't. If GM wants to survive as a company and not as the host organism for the parasitic UAW, it should make the long over do announcement that it will be seeking bankruptcy protection under Chapter 11 in order to reorganize its business. If it doesn't, it may exist for a brief period of time as a scaled down post office type operation, making tiny eco- friendly cars that won't take you very far, while providing jobs with above market compensation and benefits for a small number of politically connected autoworkers. But its days will be numbered, and when the operating losses become too great, and they will, for the UAW's Democratic allies to continue to provide the necessary political cover they too will cease to exist.

How is it that GM got things so wrong? They seemed to be under the false impression that because the Democratic party was beholden to the UAW's campaign contributions afforded by it's dues paying members, that somehow it was safe to sleep with the enemy. I hope they know now what they should have known then; it is never safe to sleep with your enemy! They failed to realize that they were never going to get a fair shake in the political arena. Without the protection of the bankruptcy laws and the threat of a court imposed settlement, the company will continue to be stuck between a rock and a hard place in it's negotiations with a recalcitrant union that won't budge and bondholders who don't want to be sacrificed to placate the UAW.

There is a lesson here in dealing with a government that disdains the rule of law and thirsts for ever more power and it is a simple one: When you shake hands with the devil, you better count your fingers!

Monday, March 9, 2009

What is it going to take to discredit the "Economic Fine Tuning Crowd" so that they will take a break from their massive intervention in the not so free markets in order that a recovery might actually get underway? How is it that there are still people who believe in the ability of the government to "Fix" the economy?

If there is anything that we have learned in the past year, it has got to be that the government interventions to save the economy have done anything but save the economy. Saturday, March 14 will mark the one year anniversary of the Shot gun Wedding arranged by the Fed of JP Morgan and Bear Sterns. Bear, the blushing bride, was forced to walk down the aisle with Morgan in order to save the banking system, and sacrificed to save the families reputation, so to speak. That Friday, the DJIA closed at 12,145, the S&P 500 at 1,315 and the NASDAQ at 2263. A year after the start of "Rescue Mania", all three of the major market indexes are at about half of their year-ago values. This is what the government considers a rescue plan?

Perhaps if we examined the other recipients who have benefited from government bailouts, we'd find that they are in much better shape. This might then account for the lingering belief in the ability of the government to rescue troubled companies. Roll call: AIG? CITI? Bank of America? Fannie & Freddie? GM? Chrysler? Nope! The story is pretty much the same. Rather than being the elixir of life, government bailouts seem to be a curse, turning seriously ill companies into zombie-like firms that move aimlessly about consuming increasing amounts of taxpayer dollars, but never recovering from their zombie-like state.

After working their magic rescuing corporations, it seems they are now getting serious about bailing out/rescuing the homeowner with an effort to pass a cram-down law that will legalize theft. Someone borrowed money from a bank to buy a home and will legally not be obligated to pay it back. What else would you call this? The idea that things will improve in the mortgage markets because the government has created significant additional risk to bank capital flies in the face of economic logic. Why don't they just pass a law making it legal to rob banks?

When the result of the rescues are this bad, I think that a legitimate argument can be made, like the one we made in September, that doing nothing would have produced a better outcome. Had we done nothing, could the markets be considerably worse off? One thing we know for sure is that had we done nothing, we would not now be on the hook for the trillions in debt the bailout/rescue/recovery plan will cost us.

The Government rescue plans aren't rescuing! Republican led bailouts didn't work, and the Democrat led bailouts aren't working either. I think what is needed is a "bailout intervention" led by the taxpayer. Maybe that would snap them out of their denial and force them to abandon this reckless behavior.

Part of the problem is that politicians don't want to admit that they don't know what they are doing. With great confidence, they tirelessly repeat a version of what their staffer who spoke to another staffer who heard an economist supporting their plan said, with the version enhanced just a little bit each time it was repeated. The truth is the economist who they claim is supporting their view point is no where near as sure of the outcome as is the politician who doesn't know a thing about economics claims to be. After listening to Pols this last month we all know that government infrastructure spending has a 1.54 multiplier effect. That's good, right? Well it seems that only the politicians are sure of this, and the economists think that this might be the case, but really aren't all that certain. Can you imagine the malpractice suits if the government was held to the same standards that your doctor is?

Actions have consequences, and the consequences of compounding one mistake with another aren't good. Here is my suggestion: the Congress should take an early and extended Spring Break this year. They should go back to their districts or to the beach and just hang out for a while, but before they go they should do us all a favor and ditch the mark to market accounting rules that are choking the banks. This would give the banks and the rest of us in the private sector a little breathing room and some time to get the economy going again.